Economics 7550

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Economics 7550

• Health Economics
• A. Goodman

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The course

• Class Meets MW 5 650
• Office Hours MW 330 445, or by appt.
• Office location 2145 FAB
• Phone [phone] e-mail allen.goodman_at_wayne.edu
• Department and Course Web site
  http//www.econ.wayne.edu/agoodman/7550/

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Text materials

• The text materials will be
• The Economics of Health and Health Care, 6th
  Ed., by Sherman Folland, Allen C. Goodman, and
  Miron Stano
• The Elgar Companion to Health Economics, Edited
  by Andrew M. Jones, to be purchased at the
  appropriate bookstore.
• Selected readings at the library.

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Exams and Grading

• Students will be responsible for the following
  assignments in (roughly) chronological order
• 1st short in-class presentation 4.16
• mid-term exam Wednesday October 21 25.00
• 1 paper (15 - 20 pages) 25.00
• 2nd  in-class presentation (on paper) 8.33
• Monday, December 16 in class
  37.50

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Papers and Presentations

• In class presentations of current events and good
  journal material.
• An excellent database on health status and
  expenditures is available. The term paper (and
  presentation) will be prepared as original work
  from the database, using appropriate data
  analysis and econometric techniques.

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The Curve
Any grade below B in a graduate level course is
considered to be a failing grade.
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Relevance of Health Economics

• The health care sector is big, and is getting
  bigger. In 1950, less than 5 of GDP went to
  health care. By 1976, it was about 8, and now
  it's over 16. This means that not only has
  health care grown absolutely, it has grown
  relative to everything else.
• It's trivial, but nonetheless useful to consider
  this algebraically.
• s pq/y.

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Health Share

• s pq/y.
• ds (q/y)dp (p/y)dq (pq/y2) dy.
• Dividing both sides by s, we get
• ds/s dp/p dq/q - dy/y.

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Some Numbers

• Nominal health expenditures per capita were
• 148 in 1960. Rose to 7,421 in 2007 - a
  factor of 50!
• Real health expenditures per capita were
• 148 in 1960 1,058 in 2007.
• 1,058/148 7.15
• Increase of about 615. Are we 7 times as
  healthy. No!

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Natl Health Expenditures per capita by Year
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Compared with Others
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Is it Worth it?
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Still another cause for concern

• Problems that people have getting insured.
• Almost 1 in 6 Americans do not have health
  insurance. The most recent estimate is 45-46
  million. We have a feature in the book that
  talks about how this is measured.
• Only the U.S., among advanced countries, does not
  have some form of universal health coverage.

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Origins Physician Shortage

• Health economics has evolved from applied work in
  more general economics. An example.
• In early 1940s Milton Friedman and Simon Kuznets,
  looked at the so-called physician shortage of the
  1930s.
• These shortages are often defined through the
  health care sector, by positing a technological
  ratio (e.g. x physicians per capita), then
  calculating the number of physicians necessary,
  and comparing it to the number available.

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Physician shortage

• FK discovered that physicians, at the time, were
  earning about 32 more than dentists, while their
  training costs were about 17 higher. What would
  we expect to see over some adjustment period ???
• Agt Entry into the physician market. Friedman and
  Kuznets attributed long-term high returns to
  barriers to entry into the medical profession
  through licensure, and education.

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Price Discrimination
Why does individual physician face down- ward
sloping D curve?

• Reuben Kessel addressed the practice of
  physicians to charge different patients different
  fees. The physicians often argued that this was
  charity. That is, they charged some more, to
  subsidize charging others less. Kessel argued,
  instead that it increased profits by getting
  money from those who were most able to pay.

D
P
MC
P
MR
Q
Q
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Price Discrimination

• Now suppose the physician wants to treat 1 more
  customer, who he knows, can pay less. MR is
  still greater than MC. Further, most health care
  can not be re-sold if you break your leg, I
  can't go and get cheaper treatment and re-sell it
  to you.
• Hence, additional profits can be made, even if
  physicians charges subsequent buyers less money.

Inc. Profit
D
P
MC
P
MR
Q
Q
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Does Economics Apply to Health and Health Care?

• 1. Uncertainty
• Most analysis that we do in economics ignores
  uncertainty. Where does this occur?
• Patient status - How healthy are we? Will we
  need treatment?
• Efficacy of treatment - Do we need it? Will it
  work?

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Does Economics Apply to Health and Health Care?

• 2. Prominence of Insurance
• Perhaps no other sector features insurance so
  prominently. In 1960 about 55 percent of all
  personal health care expenditures were paid
  out-of-pocket 45 percent by third party payers
  and/or government. By 2000, almost 83 percent
  paid by third party payers.

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Does Economics Apply to Health and Health Care?

• 2. Prominence of Insurance
• Availability of insurance. Who has it? Who
  doesn't?
• Effect of insurance on technology. Does
  insurance impact which kinds of treatments are
  given, and which aren't?

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Does Economics Apply to Health and Health Care?

• Information
• Lots of economic analysis assumes perfect
  information on the parts of buyers and sellers.
  This is symmetric information. Both parties
  have it.
• Sometimes neither party has the information.
  e.g. Neither the gynecologist nor her patient may
  recognize early stages of cervical cancer without
  a Pap smear.

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Does Economics Apply to Health and Health Care?

• Sometimes, physician knows more about disease,
  and must act as an agent for the patient. Some
  feel that this can lead to the recommendation of
  too much, or even unnecessary care.
• How informed are patients? Agt Probably pretty
  well informed for a substantial proportion of
  their care. Pauly did kind of a back of the
  envelope calculation for 1971 and found that a
  large portion of care WAS well-informed. This is
  dated, but not bad.

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Does Economics Apply?

• 4. Role of Non-Profit Firms
• Unlike most other economic analysis, there is an
  important role for non-profit firms in the
  industry. How does this work out in economic
  models in which profits are maximized?
• How is a hotel different from a nursing home?
• If we want to send aid to New Orleans, who do we
  go to? Why?

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Does Economics Apply?

• 5. Restrictions on Competition
• There are many. These include
• Licensure requirements for providers
• Restrictions on advertising (although these seem
  to be waning there doesnt seem to be much that
  we cant advertise).
• Standards which frown on price competition

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Does Economics Apply?

• 6. Need and Equity
• Finally, the health care sector engenders
  considerable discussion of the role of need, as
  well as many equity concerns.
• The whole debate about National Health Care
  policy is a manifestation of this concern.

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Does Economics Apply?

• This is a particularly interesting issue teaching
  things as an economist. As an economist, we look
  at markets FIRST. The rest of the world,
  including those who make policy, are more likely
  to look at government FIRST, markets LAST.
• For next class look at Fuchs (AER, 1996), and
  Zweifel and Breyer (Ch. 1).

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Journals and Web Sites

• There are some terrific places to find
  information and data.
• Information WSU Library (for Science Direct).
  Journals such as Journal of Health Economics.
• Another excellent journal is Health Economics.
• More topical stuff is at Health Affairs.

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Web Sites

• Medicare and Medicaid CMS
• Center for Disease Control CDC
• OECD
• Data for analysis MEPS